Do Net Operating Losses Expire?

Overview of Net Operating Losses

Companies in the US can carry forward net operating losses indefinitely to offset future taxable income. The CARES Act temporarily lifted the 80% deduction limit for losses carried back for 2018-2020.

Calculation and Benefits of Net Operating Losses

  • To calculate the net operating loss, subtract tax deductions from net income. This deduction reduces taxable income in future years.
  • Certain deductions like theft or casualty losses can result in a net operating loss.
  • Net operating loss carryforwards allow unprofitable companies to use losses to reduce taxes when they become profitable later.

Duration and Benefits of Net Operating Losses

  • A net operating loss occurs when a business’ deductions exceed its income. Companies can carry these losses forward indefinitely to offset future taxable income, with a deduction limit of 80% of income.
  • Using losses sooner rather than later provides more value due to the time value of money concept.

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